Global impact will be top of agenda at G20
AS WORLD leaders descend today on the luxury resort of Los Cabos, on Mexico's Pacific Coast, the political turmoil enveloping Greece and the eurozone has again left them facing the prospect of another global financial crisis.
For the second successive G20 summit, the crisis afflicting Greece and the single currency will dominate proceedings, with the irritation of international leaders toward their eurozone counterparts likely to be near the surface.
In the run-up to last November's summit in Cannes, British Chancellor George Osborne warned that leaders had six weeks to save the euro.
At that summit, Silvio Berlusconi, then Italian Prime Minister, fell asleep during key negotiations and Nicolas Sarkozy, then French President, was more interested in photo opportunities with Barack Obama. Meanwhile, Greek politicians were effectively forced to drop plans for a referendum.
This time, six months on, patience appears to have run out and many leaders from beyond the euro are angry at the inaction that threatens the global economic recovery.
Britain has been pushed back into recession by the crisis, while US President Barack Obama is growing increasingly concerned that his re-election this year has been put in jeopardy by the behaviour of European politicians. Even the Chinese are suffering from a rare fall in the rate of growth.
The prospect of a second credit crisis to rival the meltdown of 2008 and 2009 is now a real possibility.
One of the biggest problems is that world leaders will begin meeting this afternoon without a clear sense of how the Greek election results will impact on the formation of a new coalition government.
The ultimate winner of the elections will be given up to three days to form a new government. Exit polls last night indicated that this role will narrowly fall to the New Democracy party, which, at least, supports the principle of the austerity measures.
However, New Democracy would have to form a coalition with at least one other party, probably rivals Pasok, making a fragile administration.
A sizeable number of voters have backed parties against the austerity measures. About 46pc of voters backed Syriza, a coalition party of left-wingers, and other groups which have opposed the terms of the bailout.
Therefore, whichever parties manage to form a coalition will inevitably attempt to renegotiate the terms of Greece's international bailout, worth more than €200bn.
Germany is thought to favour only a slight watering-down in the terms -- probably by lengthening the period of the Greek austerity programme.
It is feared that if the Greek deal is effectively reopened, other countries which have agreed to harsh austerity programmes, including Ireland, Spain and Portugal, will also demand new terms. The entire EU-wide austerity programme could quickly collapse.
German Chancellor Angela Merkel is already facing mounting calls for a referendum in Germany if any more German money is put at risk elsewhere in the eurozone.
The new socialist administration in France is backing a relaxation in some of the austerity programmes.
The French government is advocating a new European-wide "growth" plan to boost the economy. The funding for such a scheme would be from so-called eurobonds, which would effectively be underwritten by the Germans.
Discussions have also already been held about central banks co-ordinating action today to pump money into the global economy if this becomes necessary. However, superpowers such as America and China are unlikely to agree to provide extra money for the IMF that could be used to bypass the eurozone.
The British government believes that it may take a Greek euro exit to focus German minds. They may not have long to wait.